SHELL RESTATES ITS RESERVES, SHARES PLUMMET

Royal Dutch/Shell Group, Europe's second-largest oil company, cut its estimate of proved oil and gas reserves by 20 percent and failed for a third year to find as much oil as it pumped. The shares fell 7.7 percent.

The disclosure is a blow to confidence in Chairman Philip Watts and increases investor concern about growth at Shell's exploration division, its most profitable unit. In October, Shell said it would miss its production target for 2003. The drop in Shell shares Friday was the biggest since July 2002.

"I'm absolutely amazed," said Steve Thornber, who helps run the equivalent of about $2.2 billion in oil stocks at Threadneedle Asset Management in London, including Shell shares. "It doesn't change my view of the management, because I didn't have a high opinion in the first place."

Shell's proved reserves at the end of 2002 were 15.5 billion barrels, not the 19.4 billion stated earlier, spokesman Simon Henry said. The 3.9 billion-barrel difference still has "scope for recovery" and may ultimately be produced, Shell said. London-based Shell said it replaced 70 percent to 90 percent of 2003's output, signaling reserves may fall further.

The reduction is equal to 13 percent of all the proved crude oil reserves in the United States.

The U.S. Securities and Exchange Commission has asked oil companies to review their assessment of reserves in the Gulf of Mexico, Henry said. That was unrelated to Shell's probe, which was triggered by studies done in the fourth quarter. Last year, BP PLC, Europe's largest oil company, cut an estimate of reserves in a Russian joint venture because of a change in SEC rules.

Shares of Shell Transport & Trading Co., which owns 40 percent of the group, in London declined 30 pence (55 cents) to 371.25 pence ($6.88). Royal Dutch Petroleum Co., which owns the rest, lost 3.17 euros ($4.06) to 38.26 euros ($49.03) in Amsterdam.

Standard & Poor's said in a statement that it may cut Shell's AAA credit rating, one of three companies in Europe with such an assessment. Exxon Mobil Corp., the largest investor-owned energy company, is the only other oil company judged as safe by debt-rating companies.

The changes came because Shell is using a "tighter" definition of reserves, Shell's Henry, head of investor relations, said on a conference call. Watts and other executives such as Chief Financial Officer Judy Boynton weren't on the call.